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Gerrit B. Koester, Excursus: Macroeconomic development in Germany 1950-2005 in:

Gerrit B. Koester

The political economy of tax reforms, page 85 - 88

An empirical analysis of new German data

1. Edition 2009, ISBN print: 978-3-8329-4131-4, ISBN online: 978-3-8452-1609-6 https://doi.org/10.5771/9783845216096

Series: Neue Studien zur Politischen Ökonomie, vol. 5

Bibliographic information
85 dominated the revenue pattern. In the property taxes changes in revenue were very limited, not at least as a result of low reform activities. REFORM PATTERNS BY KIND OF TAX -2,00% -1,50% -1,00% -0,50% 0,00% 0,50% 1,00% 1,50% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 REDUCTIONS INCREASES WAGE AND INCOME TAX REFORMS Based on: Federal ministry of finance; annual reports, 1964-2004. -2,00% -1,50% -1,00% -0,50% 0,00% 0,50% 1,00% 1,50% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 REDUCTIONS INCREASES I Based on: Federal ministry of finance; annual reports, 1964-2004. PROPERTY TAX REFORMS -0,02% 0,00% 0,02% 0,04% 0,06% 0,08% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 INCR RED INHERITANCE TAX -0,10% -0,05% 0,00% 0,05% 0,10% 0,15% 0,20% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 INCR RED REAL ESTATE ACQUISITION TAXES -0,30% -0,20% -0,10% 0,00% 0,10% 0,20% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 INCR RED NET WEALTH TAX Own calculations based on : Federal Ministry of Finance (2004)/Tax laws.Reforms by date of implementation. -0,02% 0,00% 0,02% 0,04% 0,06% 0,08% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 INCR RED I E IT E T X -0,10% -0,05% 0,00% 0,05% 0,10% 0,15% 0,20% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 INCR RED E L EST TE ISITI T XES -0,30% -0,20% -0,10% 0,00% 0,10% 0,20% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 INCR RED ET E LT T X Own calculations based on : Federal Ministry of Finance (2004)/Tax laws.Reforms by date of implementation. CONSUMPTION TAX REFORMS Based on: Federal ministry of finance; annual reports, 1964-2004. -0,10% 0,00% 0,10% 0,20% 0,30% 0,40% 0,50% 0,60% EF F 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 0 2 4 RED INCR MINERAL OIL TAX -0,05% 0,00% 0,05% 0,10% 0,15% 0,20% 0,25% EF F 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 0 2 4 RED INCR TOBACCO TAX -0,20% -0,10% 0,00% 0,10% 0,20% 0,30% 0,40% 0,50% 0,60% EF F 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 0 2 4 Reductions Increases VAT I Based on: Federal ministry of finance; annual reports, 1964-2004. -0,10% 0,00% 0,10% 0,20% 0,30% 0,40% 0,50% 0,60% EF F 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 0 2 4 RED INCR I L IL T -0,05% 0,00% 0,05% 0,10% 0,15% 0,20% 0,25% EF F 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 0 2 4 RED INCR T T -0,20% -0,10% 0,00% 0,10% 0,20% 0,30% 0,40% 0,50% 0,60% EF F 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 0 2 4 Reductions Increases T -0,60% -0,50% -0,40% -0,30% -0,20% -0,10% 0,00% 0,10% 0,20% 0,30% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 INCR/GDP RED/GDP BUSINESS TAX REFORMS Based on: Federal ministry of finance; annual reports, 1964-2004. CORPORATE PROFIT TAX -0,25% -0,20% -0,15% -0,10% -0,05% 0,00% 0,05% 0,10% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 INCR/GDP RED/GDP LOCAL TRADE TAX Figure 39: Reform patterns in income, business, consumption and property taxes 3 Excursus: Macroeconomic development in Germany 1950-2005 As background for our analysis of revenue developments (in part III and IV) and tax policy (in part V), we shortly review some stylized facts on macroeconomic development in the Federal Republic of Germany from 1950 to 2005. We focus on real growth, inflation, unemployment and the development of factor incomes and abstract largely from international developments.151 We can group the macroeconomic development of the German economy after World War Two into three major periods152 (see Figure 40): the first period from 1950 to 1973, the second from 1974 till 1990 and finally the third period from 1990 onwards. 151 More extensive discussions can be found e.g. in Giersch et al. (1994). 152 For a different classification see e.g. Muscheid (1986), Giersch et al. (1994) or Ehrlicher (1994). 86 -5% 0% 5% 10% 15% 20% 25% 30% 19 51 19 53 19 55 19 57 19 59 19 61 19 63 19 65 19 67 19 69 19 71 19 73 19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05 GDP GROWTH (NOM) GDP GROWTH (REAL) -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 19 51 19 53 19 55 19 57 19 59 19 61 19 63 19 65 19 67 19 69 19 71 19 73 19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05 INFLATION (GDP DEFLATOR) MACRO DATA GERMANY 1950-2004 From 1991 on: Including East Germany Data source: Federal Statistical Office 2006. Figure 40: Economic growth and inflation – Germany 1950-2004 The first period was characterized by extraordinarily strong economic growth during reconstruction in the 1950s and modernization and expansion in the 1960s. Unemployment (in the national definition) decreased strongly from more than 10% in 1950 to less than 1% in 1961 and stayed – with the exception of a temporary increase in the recession year 1967 – very low throughout the 1960s. Inflation (measured in terms of the GDP deflator) was high in 1950 but fell quickly and was relatively moderate until 1968. The first oil crisis in 1973/74 was the watershed in between the first and the second period. The oil crisis triggered a severe recession in 1974/75. Economic growth recovered in 1976 but quickly decreased again, and the second oil price shock of 1979/80 led to a renewed contraction already in 1981/82. Both economic downturns led to strong increases of unemployment in a cascaded pattern as the following economic recoveries did not lead to substantial decreases of unemployment (see Figure 41). Inflation153 had – based on lose monetary policy – already started to grow strongly in the late 1960s, reached a high of 7.4% in 1970 and was successively brought down to lower levels during the recessions 1974/75 and 1982/83 (see Figure 153 Measured here in terms of the GDP deflator. 87 40). After the second oil price shock, economic growth recovered but remained relatively low. 20 30 40 50 60 70 80 19 50 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 Labour income/GDP Income from capital and entrepreneurship/GDP 0 2 4 6 8 10 12 14 19 50 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 Unemployment rate MACRO DATA GERMANY 1950-2004 % % Data source: Federal Statistical Office 2006. Figure 41: Unemployment rate (national definition) and shares in national income The third period started with reunification in 1990 – economic and monetary union on July 1st and full political union on October 3rd – and is still ongoing. Abstracting from the statistical break in 1991, economic growth increased strongly around reunification. This was driven mostly by strong demand from the former German Democratic Republic (GDR). However, shortly after the reunification boom a recession hit Germany in 1993 and economic growth had been (despite a short boom in 1999/2000 and a following recession) low until 2006. After reunification unemployment increased strongly till 1997, fell back untill 2001 (resulting from the economic upswing) and increased further afterwards. Unemployment reached the highest level since World War Two in 2005.154 Inflation increased strongly during the reunification boom but fell strongly afterwards and has been very low since 1996. In 2000 there was even a slight deflation (if measured by the GDP deflator). 154 Partly this is due to statistical distortions and a change in labor market regulation in 2005 increasing the incentives to register as unemployed. 88 Additional to the macroeconomic variables economic growth, inflation and unemployment, the distribution of income in between the factors dependent labor and capital and entrepreneurship is especially important for the tax mix as e.g. the share of income from dependent labor is related to the share of wage taxes in total taxes. Within the first decade analyzed here (1950-1960), the distribution of factor income155 was relatively stable (see Figure 41). From the early 1960s till 1982, the share of labor income showed a continuous upward trend while income from capital and entrepreneurship decreased. From 1982 till 2005, the data showed the opposite (but less pronounced) trend with an increasing share of income from capital and entrepreneurship while the share of labor income decreased respectively. The decrease in the share of labor income is related to high (and rising) unemployment rates (reducing the number of wage earners and putting downward pressure on wages) after the second oil crisis.156 155 Measured based on national accounting. 156 However, it is also affected by profit developments, but here reliable data is rare.

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Zusammenfassung

Was bestimmt die Steuerpolitik? Welche Ziele verfolgen die Bundesregierungen bei Steuerreformen? Haben Steuererhöhungen und Steuersenkungen einen Einfluss auf die Wahlergebnisse? Auf der Basis eines neuen Datensatzes zu den fiskalischen Effekten von Steuerreformen im Zeitraum von 1964 bis 2004 zeigt das Werk Muster der Steuerpolitik auf und testet zentrale ökonomische Hypothesen. Dabei zeigt sich, dass normative ökonomische Ansätze kaum einen Erklärungsbeitrag für die zu beobachtende Steuerpolitik leisten können.

Ausgehend von wichtigen polit-ökonomischen Theorien zeigt der Autor, dass die Mehrheitskonstellationen im Bundesrat einen wichtigen Einfluss auf die Steuerpolitik haben, allerdings genau umgekehrt wie von der Blockade-Hypothese behauptet: Steuerreformen sind gemessen an ihren Fiskaleffekten bei gegenläufigen Mehrheiten in Bundestag und Bundesrat häufiger und umfangreicher. Des Weiteren gibt es keine Hinweise darauf, dass die parteipolitische Zusammensetzung der Bundesregierung einen wichtigen Einfluss auf Steuerreformen hat. Wahltaktische Terminierungen von Steuerreformen spielen aber sehr wohl eine wichtige Rolle. Eine Auswertung des Zusammenhangs von Steuerreformen und Wahlergebnissen zeigt allerdings, dass die Versuche der Bundesregierungen, ihre Wiederwahlwahrscheinlichkeit durch Steuersenkungen kurz vor der Wahl zu erhöhen, wenig erfolgreich sind: Nicht nur die Jahre unmittelbar vor den Wahlterminen, sondern die Steuerpolitik in der gesamten Legislaturperiode hat einen Einfluss auf die Bundestagswahlergebnisse der regierenden Parteien.